Monday 11 December 2017

Richard Curran: Vodafone Verizon deal handy earner for Irish shareholders

The €98bn sale of Vodafone’s stake in US telecommunications group Verizon will bring a welcome little earner for many of the tens of thousands of Irish Vodafone shareholders.

Originally there were about 450,000 of them when Eircom sold its mobile arm to Vodafone in an all share deal back in 2001. Those of us with long memories will recall that at the time the deal was based on a Vodafone share price of £2.25 per share.

Very quickly after announcing the deal, Vodafone’s share price began to fall and it looked like a bad deal for Eircom shareholders, right from the word go. I remember asking then Eircom chief executive Alfie Kane, why he had sold the jewel in the Eircom crown in an all paper deal – in other words, just shares and no cash.

He told me it was naive of people to think that Vodafone would have bought the business for cash. They would only have taken it in a share deal. At the time, that was how Vodafone tended to snap up a lot of acquisitions.

This led to multiple new rights issues, which diluted many people’s stake in Vodafone and held back the share price despite constant global expansion. All the while that Vodafone was building up enormous value in its business around the world, it was issuing lots of new shares.

So, it is ironic that 12 years later, thousands of Irish Vodafone shareholders are looking at a share price of around £2.10, having sold the Irish operation for a certain number of shares, when Vodafone was trading at £2.25.

Vodafone shares have been struggling for some time and reached a low of just over £1 in 2008. However, they have steadily climbed back again to current levels of £2.10.

Shareholders will receive around 83p for every Vodafone share they have. Many of them were small Eircom investors and ended up with around 200 or 300 Vodafone shares. So the windfall might not be so great.

One group to benefit enormously from the Eircom flotation was the Eircom Employee Share Trust. Its 14,000 members received over €700 million in tax free distributions over a 13-year period. However, with the ESOT now winding down, it sold its remaining Vodafone shares last November.

The ESOT had around 14.7 million of them, which would have seen a windfall of £12.2 million going to the ESOT. But it ran out of time and is now pretty much gone.

As for Vodafone plc, history has a habit of repeating itself when it comes to the business world. Eircom sold its mobile arm to Vodafone and found itself vulnerable to a takeover. The company was in fact bought out relatively quickly after the deal was done.

I wonder if a similar pattern will happen with Vodafone itself. It is selling its stake in the US Verizon business, which may now pave the way for a bid for Vodafone itself. There is already speculation that AT&T could bid for the British group. Watch this space.


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